Cookies

We use cookies to ensure that we give you the best experience on our website. By continuing to browse this repository, you give consent for essential cookies to be used. You can read more about our Privacy and Cookie Policy.


Durham Research Online
You are in:

Can subsidies rather than pollution taxes break the trade-off between economic output and environmental protection?

Renström, Thomas I. and Spataro, Luca and Marsiliani, Laura (2020) 'Can subsidies rather than pollution taxes break the trade-off between economic output and environmental protection?', Energy economics. .

Abstract

We build a general equilibrium dynamic model in which individual investors are endowed with “warm-glow” preferences a la Andreoni (1990) so that they feel partly responsible for the pollution content of their portfolio. Through investors’ portfolio choice, firms are induced to engage in costly abatement activities, given that higher pollution also implies a higher cost of capital. In this scenario, we characterize the equilibrium of the economy and investigate, through a fiscal reform analysis, the effects of such tax instruments on the equilibrium scale of the economy, per-capita consumption, pollution abatement and “pollution premium”. We show that an increase of the pollution tax, while reducing pollution, also depresses consumption, the scale of the economy and the pollution premium. On the contrary, an increase of subsidies on abatement activity increases the scale of the economy and can also decrease pollution and the pollution premium and increase per-capita consumption. All our results have relevant testable implications, which we leave for future empirical research.

Item Type:Article
Full text:Publisher-imposed embargo until 24 June 2022.
(AM) Accepted Manuscript
Available under License - Creative Commons Attribution Non-commercial No Derivatives 4.0.
File format - PDF
(982Kb)
Status:Peer-reviewed
Publisher Web site:https://doi.org/10.1016/j.eneco.2020.105084
Date accepted:18 December 2020
Date deposited:06 January 2021
Date of first online publication:24 December 2020
Date first made open access:24 June 2022

Save or Share this output

Export:
Export
Look up in GoogleScholar